Question

your firm has current assets of $1.6 million with a current ratio of 2.4 and a...

your firm has current assets of $1.6 million with a current ratio of 2.4 and a quick ratio of 0.8. Your inventory turnover is 6 and your profit margin is 5%. If cost of goods sold are 40% of your sales, what is your net income?

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Answer #1

Current Ratio = Current Assets / Current Liabilities

Therefore, Curren Liabilities = $1.6 million / 2.4 = $ 0.667 million

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

Inventory = Current Assets - Quick Ratio * Current Liabilities = $1.6 million - 0.8 * $0.667 million

Inventory = $1.066 million

Inventory Turnover = Sales / Inventory

Therefore, Sales = 6 * $1.066 million = $6.396 million

Profit Margin = Net Income / Sales * 100

Therefore, Net Income = ($6.396 million * 5) / 100 = $0.3198 million

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